NewPage may haunt mill deal

The Verso Paper Corp. mill in Bucksport as seen from the waters of the Eastern Channel of the Penobscot River on Saturday, July 19, 2008. The aid package to facilitate the sale of the former NewPage mill in Cape Breton could spark a trade war. (KEVIN BENNETT / Bangor Daily News)

A substantial aid package crafted to breathe life into a beleaguered Cape Breton paper mill could trigger a trade war between Canada and the United States, and the mill’s former parent company NewPage Corp. could lead the charge.

The Nova Scotia government has extended nearly $125 million to Pacific West Commercial Corp., sparking warnings of a tariff action from industry observers.

In an ironic twist, the most likely American papermaker to launch a trade challenge against the subsidized paper is NewPage Corp., according to one analyst.

Verle Sutton, an industry watcher and player in the world of publication-grade paper, said the restart of the paper mill will flood the market with cheap paper.

“The restart of the Port Hawkesbury mill will increase North American capacity of SCA (supercalendered paper) by roughly 35 per cent,” he said in an interview Monday from Chicago.

As demand for supercalendered paper, used for magazines, catalogues and newspaper inserts, continues to shrink across North America, the added capacity from the Cape Breton mill could push higher-cost paper machines off-line.

“This means there will definitely be closures of SCA machines in the U.S.,” Sutton said, noting that the UPM paper mill in Madison, Maine, could be among the first on the chopping block.

Sutton, the owner of Sutton Paper Strategies, said NewPage Corp. is the most likely candidate to launch a tariff action under the North American Free Trade Agreement.

“NewPage will still have the most efficient SCA machine in North America. However, the subsidized paper coming into the U.S. from Nova Scotia will lead to very low SCA prices, and result in lower coated groundwood prices as well. This will cut deeply into the company’s profits.”

NewPage did not return calls for comment late Monday.

In 2010, NewPage and Sappi Fine Paper filed a petition against subsidized Chinese and Indonesian paper.

The companies successfully persuaded the U.S. Department of Commerce and the International Trade Commission to slap costly tariffs on the paper imports to offset the rate of government subsidization.

Maine Congressman Mike Michaud, who testified during the trade hearings against subsidized Asian paper imports, expressed concerns about subsidies at the Point Tupper paper mill.

“I’ve made it a top priority to promote our domestic manufacturing sector, and I’m concerned that this action in Canada could damage our paper industry at a time we can least afford it,” Michaud said in an earlier press release.

“I’ve supported our paper industry when they’ve pursued cases against unfair foreign subsidization and would do so again in this case if Maine’s mills determined it was necessary.”

However, some analysts say a tariff action is unlikely to succeed, given what is called the “black liquor” tax credit in the U.S., which has transferred billions of dollars from American taxpayers to the country’s paper industry.

Moreover, the Nova Scotia government has argued that a large portion of the $150 million it has extended to the embattled paper mill over the last year is not a direct subsidy.

Indeed, much of the funding has gone toward investing in sustainable forest management and infrastructure in the region or will be used to purchase more than 20,000 hectares of land, for example.

Jeff Larsen, executive director of investment and trade at Nova Scotia’s Economic and Rural Development and Tourism Department, told The Chronicle Herald in an earlier interview that the province sought advice from advisers before putting the funding package in place.

“We’ve considered it, and from a softwood lumber agreement or NAFTA (perspective), we think a challenge would be unsuccessful if there was one,” he said.

Charles Colgan, an economics professor at the University of Southern Maine in Portland, said this is another chapter in the decades-long saga between New England and the Maritimes on the role of government support for natural resources.

“We’ve had similar issues arise with the softwood lumber dispute and the fishing industry,” he said in an earlier interview.